Moving Away From Cash
Traditionally, cash and checks were the preferred payment method for basically all day-to-day transactions, but the role of physical currency is being re-evaluated. The promise of instant global transactions with a decreased risk of theft or counterfeiting, and the sheer convenience of not handling physical money has made digital transactions more and more prevalent. It's a trend welcomed with open arms by some, while others remain skeptical about a future where cash (and the ability to pay for goods and services with it) becomes more and more scarce.
Payment Processing Companies
Cashless societies would be impossible without the robust frameworks set by payment processing companies. When you tap your card at your local café or when you check out your online cart, there are several processes happening in the blink of an eye, ensuring your money safely reaches its destination. The sheer scale of these companies is monumental, with companies like Visa and MasterCard handling trillions of dollars annually.
Of course, this convenience and efficiency come at a price. Payment processors, card networks, and issuing banks all take a slice of the pie, extracting fees from the transactions they facilitate. This is why you might sometimes find minimum purchase amounts set by smaller merchants when using cards—they're trying to ensure the fees don't eat too much into their profits.
The E-Commerce Catalyst
Payment processing companies are the backbone of electronic transactions, seamlessly bridging the gap between merchants and customers. The rise of digital payments and the successive phasing out of cash can in part be explained by the convenience that online shopping offers for consumers.
How it works
At the heart of every digital payment is the crucial transaction data from the point of sale (POS) system (a payment terminal or online checkout portal like the ones provided by Shopify). In turn, the card network reaches out to the issuing bank, which is responsible for providing the card to the customer. The bank checks if the card is valid and if there are enough funds or credit to cover the purchase.
Once the bank verifies these details, it sends back a response—either approving or declining the transaction. This decision quickly travels back down the chain to the merchant, letting them know if the sale can proceed. An integral part of this system is the settlement phase. After a day's worth of sales, merchants compile all their approved transactions and send them to their payment processor. The processor then oversees the movement of funds from the various issuing banks directly into the merchant's bank account, usually over a day or two.